Wednesday, December 22, 2010

The Dividend Aristocrats index includes members of the S&P 500 which have raised distributions for at least 25 years in a row. This is no small accomplishment, given the fact that this long period of time includes several recessions, oil price shocks and two wars in Iraq. The companies that could achieve this accomplishment have been able to generate rising dividends for at least 25 years, due to their strong competitive advantages and sound business models. Only a company with a competitive advantage could afford to raise dividends to shareholders for such a long period of time.

Over the past few years, the S&P Dividend Aristocrats index has consistently beaten the S&P 500. Over the past 5 years, it has delivered annualized total returns of 5.20%, which was over four percent higher than S&P500's 1% annualized return for the same time period. This is despite the fact that many former dividend aristocrats in the financial sector cut dividends and were booted out of the elite dividend index during the financial crisis of 2007-2009. There are 42 stocks remaining right now. Below you could see the list of all current dividend aristocrats.

The S&P announced that it was adding three new components and deleting three old components of the index. The companies that were added include:

The screen that I used in order to gauge the attractiveness of each o the 42 dividend aristocrats had the following criteria:

1) Company was a member for the S&P Dividend Aristocrats Index2) Company traded at a P/E ratio less than 203) The dividend payout ratio was less than 60%4) The current dividend yield was at least 2.50%

I have highlighted the ones that look attractively valued at the moment:

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. The company has raised dividends for 38 years in a row. (analysis)

Automatic Data Processing, Inc. (ADP) provides technology-based outsourcing solutions to employers, and vehicle retailers and manufacturers. It operates in three segments: Employer Services, Professional Employer Organization Services, and Dealer Services. The company has raised dividends for 36 years in a row. (analysis)

Bemis Company, Inc. (BMS) manufactures and sells flexible packaging products and pressure sensitive materials in the United States, Canada, Mexico, South America, Europe, and Asia. The company operates in two segments, Flexible Packaging and Pressure Sensitive Materials. The company has raised dividends for 27 years in a row. (analysis)

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company has raised dividends for 45 years in a row. (analysis)

Cincinnati Financial Corporation (CINF), through its subsidiaries, operates in the property casualty insurance business in the United States. It operates in four segments: Commercial Lines Property Casualty Insurance, Personal Lines Property Casualty Insurance, Life Insurance, and Investment. The company has raised dividends for 50 years in a row. (analysis)

The Clorox Company (CLX) engages in the production, marketing, and sales of consumer products in the United States and internationally. The company operates through four segments: Cleaning, Lifestyle, Household, and International. The company has raised dividends for 33 years in a row. (analysis)

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company has raised dividends for 48 years in a row. (analysis)

Kimberly-Clark Corporation (KMB) , together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care. The company has raised dividends for 38 years in a row. (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. The company has raised dividends for 48 years in a row. (analysis)

McDonald’s Corporation (MCD), together with its subsidiaries, operates as a worldwide foodservice retailer. It franchises and operates McDonald’s restaurants that offer various food items, soft drinks, coffee, and other beverages. The company has raised dividends for 34 years in a row. (analysis)

The McGraw-Hill Companies, Inc. (MHP) provides information services and products to the education, financial services, and business information markets worldwide. It operates in three segments: McGraw-Hill Education, Financial Services, and Information & Media. The company has raised dividends for 37 years in a row. (analysis)

PepsiCo, Inc. (PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company operates in four divisions: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). The company has raised dividends for 38 years in a row. (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company operates in three global business units (GBUs): Beauty and Grooming, Health and Well-Being, and Household Care. The company has raised dividends for 54 years in a row. (analysis)

PPG Industries, Inc. (PPG) manufactures and supplies protective and decorative coatings. The company has raised dividends for 39 years in a row. (analysis)

V.F. Corporation (VFC), together with its subsidiaries, engages in the design, manufacture, and sourcing of branded apparel and related products for men, women, and children in the United States. The company has raised dividends for 38 years in a row. (analysis)

Screening for quality dividend stocks is just part of the process of identifying the best dividend stocks. Astute dividend investors should also research in detail each company in order to gauge whether it has any competitive advantages that would enable it to increase earnings and dividends over the next decades.

The graph I have of SYY's dividend looks like it may be short one quarter of the required time period to make the list. It appears to flatline coming into 1985, but I don't have the actual numbers.

To me, that is a drawback with a 25 year period. Nice place to look/start, but forward looking is just as important, even with newer younger companies who might be under 10 years in dividend increases. Comparing todays list of aristocrats with those of 5 years ago, and quite a few are missing. Some of the stocks on the list are slow growers barely limping along.

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